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Wednesday, Jul 02, 2003

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BSE, regional bourses to consider alliance

Sanjiv Shankaran
Raja Simhan T.E.


JULY 5 may be a milestone in the Indian securities market. On that day, Bombay Stock Exchange (BSE) and a few regional exchanges will meet in Kochi to decide on a possible alliance, thereby clearly demarcating the system into the National Stock Exchange (NSE) and the rest.

Events unfolded rapidly over the last couple of months to bring about a situation, where BSE is working on the shape of alliance with regional exchanges, said Mr P.J. Mathew, Executive Director, Madras Stock Exchange (MSE).

A couple of months ago, a handful of south India-based exchanges tried to cobble an alliance termed as Indonext to pool their resources in order to offset a significant loss in business over the last few years.

A key element of the Indonext idea was to persuade SEBI to permit the regional stock exchanges (through Indonext) to have a monopoly on trading in companies that have a paid up capital of up to Rs 20 crore. In the backdrop of a lopsided trading pattern in favour of a few large companies, Indonext promoters were upbeat about convincing SEBI to accept their proposal.

Soon after the Indonext proposal was floated, the interest spread beyond south India-based exchanges to other regional exchanges. Finally, BSE joined the fray, driven by a gradual decline in its market share.

The Kochi meet is expected to consider two alternatives involving BSE, said Mr Mathew. In the first option, the regional exchanges could access BSE's trading platform to trade in the shares of companies with less than Rs 20 crore paid up capital, dubbed the `S' (small) segment. BSE would do the clearing and settlement.

In the second alternative, a separate subsidiary would be floated with the BSE having a majority stake. The BSE would also provide the necessary infrastructure and have full management control, while there would be representations from regional stock exchanges.

The subsidiary would be a stand-alone entity, while listing would be done regionally, he said.

"The second option looks more promising as there would be more liquidity, more investors and about 8,000 brokers having direct participation. If both the options do not work out, we would go in for the Indonext (as a stand-alone without BSE)," Mr Mathew said.

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